WASHINGTON
The Consumer Price Index rose 3.4 percent annually in August, matching July but exceeding the 3.3 percent consensus forecast. CME FedWatch now prices September rate-hike odds at 90 percent, up sharply from 70 percent Thursday—a decisive shift that signals the bond market's reassessment of the disinflationary trajectory.
The pinch comes from core prices, which jumped 0.3 percent month-over-month from July's 0.2 percent. That acceleration matters most to the Federal Reserve because it shows sticky inflation spreading beyond energy. Gasoline prices alone drove one-third of the monthly CPI gain, climbing 27.4 percent year-over-year, but the core print suggests those energy shocks are bleeding into services and goods across the economy.
Greg Daco, chief economist at EY-Parthenon, said Friday: "We are changing our Fed call from a hold to a 25bps hike at the FOMC meeting next week." He flagged that some Fed officials will "argue in favor of a rate hike on the basis that the 'speed' of the disinflationary process is not satisfactory."
Kathy Bostjancic, chief economist at Nationwide, added via email: "The renewed march higher in oil, gasoline and diesel prices adds to concerns that higher energy prices could spill over to other goods and services and inflation expectations. As such, we are now looking for the Fed to raise rates by 25 basis points at next week's policy meeting."
The August data was collected before oil breached $100 per barrel and diesel topped $6 a gallon this week—data points that will almost certainly feature in hawks' arguments for tightening. Capital Economics projects a second 25 basis point hike in December and another in March 2027, implying a longer cycle ahead than markets have priced.
A rate increase would lift borrowing costs on mortgages, credit cards and auto loans, while depositors would see higher yields on certificates of deposit and money market accounts. The Fed's last hike came in July 2023; the central bank continues to target a 2 percent inflation rate.
The Federal Reserve announces its decision at 2 p.m. ET on Wednesday, Sept. 16.
